January 2007 – Page 2 – artdiamondblog.com

Barney Frank on Schumpeter’s “Great Concept”

Barney Frank. Source of photo: http://www.house.gov/frank/welcome.html

Policy-makers are often enthused by the innovation unleashed by Schumpeter’s process of creative destruction, but draw back out of fear of the destruction of jobs. In the passage below, Barney Frank expresses that fear.

I think that there are answers to the fear. More and better jobs are created, than destroyed; workers can invest in general skills that do not depreciate, and retool the specific skills that do depreciate; and conscientious workers suffer from lack of recognition and upward mobility, when creative destruction is stiffled. The pain is less than usually thought, and the gain is greater.

One of the consequences of this separation between economic growth and the well-being of the great majority of citizens is that an increasing number of citizens don’t care about economic growth. Not surprising. Not only do they not benefit, but in many cases they get the short-term disruptive effects.

I mean, there was a great concept from Joseph Schumpeter of creative destruction in which, as the old economic order is destroyed, resources are freed up for the new order.

Well, increasingly, we have people who see the destruction in their own lives, but don’t see that they’re going to be part of the new creation.

Source:

Transcript of remarks delivered at the National Press Club on "Wages" by Democratic Representative Barney Frank of Massachusetts, on January 3, 2007.

Increase in Minimum Wage, Decreases Employment Among Low-Skill Workers

Basic price theory seems to imply that raising the minimum wage, will result in greater unemployment. Almost all economists accepted this conclusion until several years ago, when some empirical results seemed to challenge it. Now there is active debate.

Here is the abstract of a relevant, just-published, article in the leading journal in the field of labor economics:

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%-4% and total restaurant employment by 1%-3%.

The article reference is:

Aaronson, Daniel, and Eric French. "Product Market Evidence on the Employment Effects of the Minimum Wage." Journal of Labor Economics 25, no. 1 (Jan. 2007): 167-200.

At Screen Actors Guild, Communists Threatened to Disfigure His Face

Source of book image: http://www.shopaim.org/assets/images/large/458i.jpg

There are better books on Reagan. But Bosch’s book has a few illuminating anecdotes. Here is one:

(p. 63) Reagan first learned about Communists and their intentions as a member of a Hollywood union, the Screen Actors Guild (SAG). He had been introduced to the Screen actors Guild by his wife Jane Wyman and had quickly risen to become a member of the Guild’s board. As a SAG Board member, and later as its president, he mediated a dispute between two rival unions. One of the unions, the Conference of Studio Unions (CSU), was led by a suspected Communist, Herb Sorrell.

. . .

(p. 64) Sorrell and Reagan went head to head. When Reagan crossed a picket line outside Warner Brothers, Sorrell called for a boycott of his movies. Reagan was called a fascist. An anonymous phone caller threatened to disfigure his face so he could never act again. He began to carry a gun and accepted police protection. He became an informant for the FBI

"These were eye-opening years for me," he later wrote. "Now I knew form first-hand experience how Communists used lies, deceit, violence, or any other tactic that suited them to advance the cause of Soviet expansionism."

Source:

Bosch, Adriana. Reagan: An American Story. TV Books Inc., 1998.

Becker on Friedman

Source of graphic: http://www.ideachannel.com/Friedman.htm

David Levy has noted in an email that at the reception to preview the new Friedman documentary, Gary Becker gave a great presentation on Milton Friedman, and it was a great shame that no one recorded it. I feel especially guilty, because I had thought of recording it, and had even brought a small camera that would have (badly) done the job. But the room was dark and crowded, and by the time the talk started, I was in conversation a long way from where Becker started speaking.

Levy suggests that maybe those of us who were there, should record our memories of what Becker said. I like that idea, and will record mine here.

Becker started out by saying to Bob Chitester that he wasn’t sure that the documentary did justice to Friedman. (Chitester was the producer, I think, of the original Free to Choose series, and a moving force behind the new Friedman documentary, to be first shown on PBS on January 29th, 2007.)

Becker mentioned that Friedman was a missionary. He would talk economics to anyone–if a taxi driver made a mistaken comment about economics, Friedman would set him straight.

Becker mentioned that while Friedman liked to argue about ideas, he never saw him be mean to anyone.

Becker mentioned that a friend of his taking Friedman’s price theory class (I think Becker may have said the friend was Gregory Chow?) asked Becker how he could keep asking questions in Becker’s class, when Friedman would keep showing the ways in which Becker was mistaken.

Becker mentioned that he talked to Friedman a few days before his death, and that they even talked a little economics.

Becker emphasized that Friedman had been both a great economist, and had made an enormous difference in the world, in particular in making the world more free.

Some background: Becker spoke about Friedman at two sessions at the Allied Social Sciences Association meetings in Chicago in early January. One was in the afternoon (about 2:30 PM?) of January 5, 2007, and also included Robert Lucas, and Tom Sargent. I missed that session because I wanted to attend a session featuring the research program of Robert Fogel on longevity. The second session, at 6:00 – 7:30 PM on Sat., January 6, 2007 was at a reception sponsored by the University of Chicago to preview the new documentary on Friedman. I attended this reception through Becker’s presentation, but did not stay for the documentary preview. My friend Luis Locay attended both sessions, and told me that some, but not all, of the stories Becker told were similar in both sessions. Locay also mentioned that Becker appeared to get more choked-up at the session on January 5, 2007.

George Washington Was a Good Man

Source of book image: http://www.wiley.com/WileyCDA/WileyTitle/productCd-0471744964.html

On December 31, 2006 on C-SPAN2, I heard part of a presentation by Harlow Giles Unger on his new book on George Washington. I found the presentation wise, sincere, impassioned and delightful. Almost every story and fact was new to me. It appears that George Washington was an inventor, a solid businessman, and in most ways a genuinely good person. Great leaders do not have to be good people in order to be great leaders, but it is nice when they are.

Reference to the book:

Unger, Harlow Giles. The Unexpected George Washington: His Private Life. Hoboken, NJ: John Wiley & Sons, Inc., 2006.

Harlow Giles Unger. Source of photo: http://www.brickstoremuseum.org/UngerHeadshot.jpg

The Resilience of Markets

(p. A11) Bystanders pulled an 8-year-old boy from the charred wreckage of a marketplace where the poor come to buy used clothes and household goods. Two of three explosions in the city claimed the lives of at least 17 people, including the boy’s parents.

Vendors said the bombs, which killed seven people, were planted in wooden carts by two strangers who set up shop near the entrance and exit to the market and left just before the explosions. After the initial shock of the explosions, shoppers and vendors resumed haggling over underwear and socks, eating shish kebab and turnips sweetened with date syrup.

"If I would go home, then what would my family eat?" said vendor Jabbar Shnawa, 35, who, after the explosion, sold a compact disc for 500 Iraqi dinars, about 40 cents.

For the full story, see:

Hennessy-Fiske, Molly. "Saddam could be hanged by weekend." St. Louis Post-Dispatch 12/29/2006): A1 & A11.

(Note: article originally appeared in the Los Angeles Times.)

“Nature Cannot be Fooled”

In his famous minority report on the Challenger shuttle disaster, written near the end of his life, Richard Feynman does not mince words. He argues that the actual risk of shuttle mission failure was on the order of one in a hundred. Then he says:

(p. 168) Official management, . . ., claims to believe the probability of failure is a thousand times less. One reason (p. 169) for this may be an attempt to assure the government of NASA perfection and success in order to ensure the supply of funds.

. . .

(p. 169) For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.

Source:

Feynman, Richard P. The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman. New York: Perseus Books, 1999.

(Note: ellipses added.)

Is Political Freedom a “Normal Good”?

Shenzhen, China. Source of photo: online version of the NYT article cited below.

Are starving citizens, or a growing midddle class, more likely to stand up for their rights? In the ongoing debate, here is a bit of evidence in favor of the middle class.

(In economics, a "normal good" is one where, ceteris paribus, more is consumed, when income increases. So in the language of economics, the following article supports the view that political freedom is a normal good.)

(p. A1) When residents here in southern China’s richest city learned of plans to build an expressway that would cut through the heart of their congested, middle-class neighborhood, they immediately organized a campaign to fight City Hall.

Over the next two years they managed to halt work on the most destructive segment of the highway and forced design changes to reduce pollution from the roadway. It became a landmark in citizen efforts to win concessions from a government that by tradition brooked no opposition.

And it was no accident that the battle was waged in Shenzhen, a 26-year-old boomtown that was the first city to enjoy the effects of China’s breakneck economic expansion and that has served as a model for cities throughout the country.

. . .

. . . Possibly the greatest force taking shape here is the quiet expansion of the middle class, thicker on the ground here than perhaps anywhere else in China. This middle class is beginning to chafe under authoritarian rule, and over time, the quiet, well-organized challenges of the newly affluent may have the deepest impact on this country’s future.

”Many people laughed at me, because they don’t have confidence in the government,” said Qian Shengzeng, a 62-year-old former rocket scientist who led the movement against the expressway. ”They think the government is hopelessly rotten. However, our view is that maybe there is a remaining sliver of hope, and the government needs to be pushed.”

In newly rich Shenzhen, as in much of China, social change is being driven by economic transformation and, more than anything else, property ownership.

For the full story, see:

HOWARD W. FRENCH. "In Chinese Boomtown, Middle Class Pushes Back." The New York Times (Weds., December 18, 2006): A1 & A8.

(Note: ellipses added.)

Map showing Shenzhen’s proximity to Hong Kong. Source of map: online version of the NYT article cited above.

Feynman on Viking Evidence of No Life on Mars

Based on the Viking tests, astronomers concluded that there probably was no life on Mars. Begley (2006) documents the recent research showing that applying the Viking tests to earth, results in the conclusion that there is no life on earth, either. Once again, Feynman was way ahead of his time:

(p. 204) We like to sit down and talk about how different things could be from what we expected; take the Viking landers on Mars, for example, we were trying to think how many ways there could be life that they couldn’t find with that equipment.

Source:

Feynman, Richard P. The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman. New York: Perseus Books, 1999.

(Note: italics in original.)

The reference on the Begley article:

Begley, Sharon. "Science Journal; Scientists Revisit Data on Mars with Minds More Open to ‘Life’." The Wall Street Journal (Fri., October 27, 2006): B1.

“The Blogger as DJ”

(p. 220) Increasingly, the winning strategy is to separate content into its component parts ("microchunks"), so that people can consume it the way they want, as well as remix it with other content to create something new. Newspapers are microchunked into individual articles, which are in turn linked to by more specialist sites that create a different, often more focused, product out of the content form multiple sources—the blogger as DJ, remixing the news, to create something new.

Source:

Anderson, Chris. The Long Tail. New York: Hyperion, 2006.

Intellectual Property Rights in Toilet

CHICAGO (AP) — The gunman who fatally shot three people in a law firm’s high-rise office before he was killed by police felt cheated over an invention, authorities said Saturday.

Joe Jackson forced a security guard at gunpoint to take him up to the 38th floor offices of Wood, Phillips, Katz, Clark & Mortimer, which specialized in intellectual property and patents. He carried the revolver, a knife and a hammer in a large manila envelope and chained the office doors behind him, police said.

Jackson, 59, told witnesses before he was shot that he had been cheated over a toilet he had invented for use in trucks, Police Superintendent Phil Cline said.

For the full story, see:

"Shooter felt cheated over toilet, police say." Omaha World-Herald (Sun., 12/10/2006): 4A.